The result was well received in the market, with NAB shares rising 3.2 per cent by late morning, to $28.17.

Revenue rose 3.3 per cent in the six months ended March 31 and bad debt charges fell year-on-year.

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NAB chief executive Andrew Thorburn.Credit:Arsineh Houspian

NAB left the interim dividend unchanged at 99¢ a share. This pushed the share of profits paid out shareholders to 79 per cent, outside its 70 to 75 per cent range.

Australia strong

It is NAB's first result since it offloaded its troubled UK business to focus on its core operations in Australia and New Zealand, and there was a mixed result across these two divisions.

In Australia, cash profits rose 5 per cent to $2.9 billion, helped by lending growth and wider net interest margins, but conditions were weaker across the Tasman.

"Our Australian businesses have performed well this period. Personal banking continues to record strong revenue growth despite higher wholesale funding costs and some slowing in the growth rate of home lending," Mr Thorburn said.

NAB's interim results.

Bad and doubtful debt charges in Australia fell 7 per cent to $341 million, as it did not repeat an "overlay" charge for bad agriculture and mining loans that it took last year.

Dairy loans sour NZ result

In New Zealand, profits fell 3 per cent to $NZ404 million ($373 million), dragged down by a jump in bad debt charges related to the dairy sector.

"Our NZ banking business produced a solid result this period despite challenges facing the dairy industry. While we remain confident in the robustness of the underlying New Zealand economy, against a backdrop of sustained low milk prices we have taken a proactive approach to provisioning for future dairy impairments," Mr Thorburn said.

Profits in its wealth division rose 12 per cent to $249 million, helped by stronger results in insurance. The bank is looking to lift returns in wealth and plans to sell off 80 per cent of its life insurance to Japan's Nippon Life , and Mr Thorburn said this deal was on track to occur in the second half of this year.

Despite the weakness in New Zealand, Watermark Funds Management investment analyst Omkar Joshi highlighted the positive role that bad debts played in NAB's overall result.

Ahead of expectations

Its bad debt charge of 0.14 per cent of assets is lower than 0.17 per cent for Commonwealth Bank, 0.21 per cent for Westpac, and 0.32 per cent for ANZ Bank, Mr Joshi said.

Bell Potter analyst TS Lim said the profit result was slightly ahead of his expectations, and a rise in net interest margins in the Australian bank was a positive sign. He said the higher bad debt charges in New Zealand could raise questions about similar risks to ANZ, which the largest bank in New Zealand.

"New Zealand is a big unknown, so if anything it could be more of a worry for ANZ," Mr Lim said.

Over the full year, NAB's provisions were down 6 per cent, but compared with the September half, provisions rose 7.4 per cent, or $26 million.

It did, however, point to an increase in stressed loans in its New Zealand dairy lending portfolio, which has been hit by a plunge in the milk price.

It said the ratio of loans that were more than 90 days past due relative to all loans rose to 0.78 per cent, up from 0.63 per cent in September, and much of this was because of sliding loan quality in New Zealand.

As banks also face pressure to hold larger loss-absorbing capital buffers, NAB's common equity tier one ratio fell 55 basis points to 9.7 per cent, which is above NAB's 8.75 per cent to 9.25 per cent target range.

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While other banks have been shedding staff, the number of full-time equivalent staff at NAB increased by 952 to 35,520. NAB's dividend will be fully-franked and paid on the 5th of July.